The Kenya Bankers Association (KBA) has sounded an alarm, warning Kenyans to brace for an even higher cost of loans if the government allows the Kenya Revenue Authority to slap Value-Added Tax (VAT) on the sale of repossessed properties.
Presenting their arguments before a tax appeals tribunal on Sunday, May 24, the association cautioned that the proposal tucked into the Finance Bill 2026 will ultimately drive up the cost of credit for borrowers across the country. To counter this, the KBA plans to aggressively lobby for amendments in the proposed finance bill to completely exempt these distress sales from the tax bracket.
“We are proposing that a specific provision be introduced as part of the first schedule of the VAT Act,” stated a KBA official. “We create a new paragraph that the sale disposal or realization of collateral, repossessed assets, or secured properties by or on behalf of a financial institution where such sale disposal or realization arises from enforcement of security in connection with a loan, or credit facility, or other exempt financial service be part of the first schedule, which exempt the financial service or any services from being charged VAT,” she added.
Banks want parliament to change the law to explicitly bar the Kenya Revenue Authority (KRA) from demanding VAT on the disposal of repossessed collateral used to recover bad debts. Conversely, KRA maintains that during auction sales of seized property, the creditor effectively steps into the shoes of the defaulting borrower, making the bank responsible for settling all applicable taxes and levies.
The tax appeals tribunal recently sided with the taxman, allowing KRA to continue slapping a 16 percent VAT on these auctioned goods, a decision bankers argue will severely hit both financial institutions and their customers. The KBA counters that repossessing and selling off collateral is a recovery mechanism for unpaid loans rather than a profit-making business venture, meaning the government should never treat it as a taxable supply.
The KBA warned that imposing VAT on these assets could distort the credit market and force banks to recover the additional costs directly from borrowers.
“If VAT on these assets continues, then banks will be forced to go back into their capital. It is not practical,” the representative said, adding that the cost of lending would likely rise as financial institutions adjust to cover the tax burden.
The association maintains that repossessed asset sales tie directly to credit facilities and deserve an exemption under the VAT Act. Ultimately, they argue that taxing these distress sales will spike lending costs and automatically choke off access to credit for ordinary borrowers.
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